Analysts: strong will survive retail shakeout - Oppenheimer and Co. investment analysts - Buyers & Sellers - Column

Discount Store News, Sept 20, 1993 by Don Longo

A recent investment report on second quarter sales and earnings by Oppenheimer & Co. analysts Bernie Sosnick, Dorothy Lakner and Leslie McCall is insightful.

The Consumer Price Index has been flat, so with virtually no inflation retailers must sell more units of merchandise to achieve higher sales, he analysts pointed out. Since the number of units of merchandise sold usually grows slowly, at about the rate of population growth, which rose 1.2% in 1992, retailers are caught in a vise of deflation on one side and competition on the other. "The retail battle for market share is focused increasingly now on unit volume, and the bare truth is evident: there isn't enough growth in consumer spending to satisfy the needs of all retailers," the Oppenheimer report says.

The shakeout of weaker retailers is gaining speed, witness the Chapter 11 filings by Jamesway and Rose's. That shakeout out "will accelerate as Wal-Mart's sales head toward $100 million by 1995," the report goes on to say.

The report notes that several surveys taken after enactment of the new tax legislation indicate consumers are not happy. "That reaction might attest more to the success of Republican rhetoric than to the actual impact on consumers' wallets," they wrote. I believe that Americans are not buying the administration's party line that only the richest will bear the brunt of the new retroactive tax hike. That line of thinking ignores the importance of private sector investment in the creation of jobs and wealth.

The second half is shaping up as a minefield for retailers. But despite lower consumer confidence, the Oppenheimer report is fairly optimistic about many retailers' prospects, particularly Caldor ("better positioned than most discounters facing Wal-Mart"), Kmart ("restructuring was a step in the right direction") and Sears ("The free ride of earnings comparisons this year should continue in the third quarter"). The report saves its strongest recommendations for Wal-Mart ("remains more powerful than competitors and should continue to grow rapidly through expansion and increases in comparable store sales") and Toys "R" Us ("bright expansion opportunities internationally").